Britain’s trade options after Brexit – no easy way out

Britain’s status as a trade power has become a central issue in the build-up to its European Union membership referendum on 23 June.

US President Barack Obama upset the “Out” campaign last week when he told British voters that Britain would go to the “back of the queue” in trade talks with the United States if it left the EU.

Campaigners who want Britain out of the EU have suggested various options for its trade arrangements.

Below is a summary of the various trade policy options for Britain in the event of a Brexit.

Free trade deal with the EU

The EU is Britain’s biggest trading partner and a priority for London after a Brexit vote would be to minimise the hit. That could be tough given that 44% of Britain’s exports go to the EU compared with the 8% of the EU’s exports that go to Britain.

Many Brexit supporters, among them London Mayor Boris Johnson, point to a recently agreed deal between Canada and the EU as a possible model for a post-Brexit Britain.

Under the Canada model, Britain could be free of the requirement to allow in workers from across the bloc and pay into its budget, two unpopular EU requirements.

But the Canada deal, which took more than a decade to negotiate, involves only a partial opening up the market for services – which make up nearly 80% of Britain’s economy.

British finance minister George Osborne said last week that a Canada-style deal would leave the economy 6.2% smaller by 2030 than it would be if Britain stayed in the EU.

The impact of staying in or leaving the EU for the UK’s global trade has become one of the most talked about questions of the referendum so far, writes Paul James Cardwell.

Norway option

Britain could follow Norway’s example and try to do a trade deal that would keep its access to the EU’s single market as part of the European Economic Area as well as European Free Trade Association. That would allow British-based banks to carry on doing business in the EU.

But Norway pays a contribution to the EU budget as large as Britain’s, when measured per person. It also follows the EU’s single market rules and regulations without a having a say in making them and accepts free movement of EU nationals.

A post-Brexit British government would have to explain to voters why it was sticking with some of the most unpopular EU requirements while giving up its voice on regulation.

British Prime Minister David Cameron on Wednesday (28 October) launched his most open defence to date of Britain remaining in the European Union, telling Eurosceptics that EU-outsider Norway was no model to emulate.

Switzerland option

Switzerland has bilateral deals with the EU plus EFTA membership which give it access to bits of the single market in return for a fee, but it does not have the right to provide cross-border financial services. Big Swiss banks have to set up subsidiaries in EU countries, adding to their costs.

Switzerland also adopts EU rules in the areas in which it has single market access and accepts the free movement of EU citizens although a vote in favour of restrictions, at a referendum in 2014, has jeopardised Swiss-EU economic ties.

A February deal allowing Britain to limit the free movement of workers coming from the European Union is giving ideas to the Swiss, who would like similar exceptions applied to their own relations with the 28 member bloc.

A UK-specific deal

Brexit supporters say Britain, the world’s fifth-biggest economy, is big enough to get its own, tailor-made trade deal with the EU. They say German car exporters or Spanish wine-makers would press their capitals to do a deal with Britain, trumping any political resentment.

But the chances look slim of Britain managing to halt EU citizens from freely entering the country or stop making payments into the EU budget.

Britain will need to make choices on trade, labour laws and the environment that could be unpopular with voters if it wants to offset the hit to its economy from any decision to leave the European Union, a think tank said on Wednesday (13 April).

WTO option

Britain could fall back on World Trade Organisation rules to for its relationship with the EU if it cannot strike a deal. “Out” supporters say import tariffs on most goods traded between rich economies have been cut to very low levels so there would not be a big hit to British exports.

But the EU has higher tariff levels on some goods including a nearly 10% duty on automobiles, a sector which employs about 800,000 people in Britain. Furthermore, the WTO has not yet significantly opened up global trade in services.

British exports would face non-tariff barriers such as rules of origin and equivalence tests for technical and environmental standards if Britain ceased to apply EU single market rules.

The stakes will be high for Britain’s historic role as a free-trading nation when it holds a referendum on whether to stay in the European Union on 23 June.

Rest of the world

A solo Britain would face the challenge of striking its own trade deals with countries beyond the EU, including more than 50 which have trade deals with the bloc. The “Out” camp says it would be nimbler than the 28-member EU to do deals with big powers such as the United States and China.

But President Obama said last week that Britain might have to wait a decade for any deal with Washington.

US President Barack Obama wasted no time in plunging into Britain’s poisonous EU membership debate today (22 April), arguing strongly against a “Brexit” as he kicked off a visit to the UK.

Background

During his campaign fro re-election in 2015, British Prime Minister David Cameron promised to renegotiate the UK's relations with the European Union and organise a referendum to decide whether or not Britain should remain in the 28-member bloc.

The British PM said he will campaign for Britain to remain in the EU after a two-day summit in Brussels where he obtained concessions from the 27 other EU leaders to give Britain “special status” in the EU.

But EU leaders had their red lines, and ruled out changing fundamental EU principles, such as the free movement of workers, and a ban on discriminating between workers from different EU states.

The decision on whether to stay or go could have far-reaching consequences for trade, investment and Great Britain's position on the international scene.

The campaign will be bitterly contested in a country with a long tradition of euroscepticism and a hostile right-wing press, with opinion polls showing Britons are almost evenly divided.

2 responses to “Britain’s trade options after Brexit – no easy way out”

For many of us who want to leave the EU, the debate has less to do with trade than with politics and sovereignty. Holding those who ‘lead’ to account. It is in the interest of the Remain Camp to concentrate on economics because the political argument is unwinnable for them. (Please sir can we reduce the VAT on tampons if you don’t mind?)
But let’s look at trade. Of all the countries in the World the UK trades most with the US (more than with any EU state), and that is without a trade agreement. The EU does not have a trade deal with the US, it has been negotiating one on and off since the TAMP in 1998 so don’t hold your breath. The talks with Mercosur also started in 1998, also still not completed. So don’t tell us that the EU is vital for trade deals. (Endless talks maybe, but not deals.) The Canadian deal has been ‘agreed’ but still not ratified, we still wait. Meanwhile Australia managed a deal with the US between April 2003 and February 2004 coming into force in August 2004, 17 months start to finish.
44% of UK exports go to the EU (you are ignoring the Antwerp Effect in this figure and the fact that the proportion of UK exports to the EU have been declining for 20 years) and only 8% of EU exports go to the UK. But that is 8% of a much bigger figure, so the overall balance is a surplus of £61.6bn to the EU. Your percentages give only a very superficial picture of the trade. Remember that the UK is the only EU state that trades more outside the EU than inside.
You say the Canadian deal (if ratified) does not cover many services. But then neither does the Single Market because of Franco – German resistance and obstruction. As you say this obstruction impacts on 80% of the UK economy.
George Osborne’s 6.2% projection for 2030 is only credible if you believe that despite his proven inability to predict accurately ahead one quarter, he can somehow manage 56 quarters.
Norway does pay into the EU, but many of their payments are voluntary to allow involvement with specific EU programmes, we could decide to opt out. Also only EU trade laws apply to Norway, these account for less than 10% of total EU legislation. Besides the trade laws every single country in the world produces already apply to any UK exporter, why would the EU laws be harder to deal with?
The Swiss pay far less into the EU than either Norway or the UK (which tends to destroy your Norway argument). Yes there are restrictions but the deals were negotiated with specific regard to the Swiss economy. Such a deal with the UK would similarly have to accept the specifics of the UK economy, including banking. There is a difference negotiating with the 5th largest economy and the 20th (World Bank figures).
It is difficult to imagine a deal acceptable to the UK electorate which allowed uncontrolled movement of people or indeed UK payments to the EU. We would be forced to trade more with the rest of the World where prices are inherently cheaper than within the EU, the point being that this is actually what the UK is currently doing on a far greater scale than any other EU state. Businesses develop trade, not governments and your obsession with trade deals ignores this fundamental fact.